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Innovation and venture capital exit performance

Nadeau, Pierre (2011) Innovation and venture capital exit performance. Strategic Change: Briefings in Entrepreneurial Finance 20 (7-8), pp. 233-252. ISSN 1099-1697.

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Official URL: http://dx.doi.org/10.1002/jsc.898

Abstract

Venture capital is a potent source of R&D financing which contributes significantly to technological innovation output in the form of patented inventions. Scholars have argued that tighter protection of intellectual property rights reduces expropriation risks and encourages venture capitalists to invest in technology firms. Prior studies have showed that early stage technology investors give much weight to investment selection criteria related to innovation e.g. protection of intellectual property, platform and uniqueness. However, VC investors generally receive little on their investments until a liquidation event occurs – IPO and M&A (trade sale) exits define venture capital performance. A review of the literature indicates that few empirical studies have examined the influence of patented innovation on the exit performance of VC-backed technology firms. This paper seeks to address this specific knowledge gap in venture capital research and practice. It builds on resource-based view (RBV) theory which argues that technological innovation is an important strategic resource of the entrepreneurial firm that can attract VC investment, provide competitive advantage and produce superior performance. This study is based on matched data compiled from VentureXpertTM, DelphionTM and NBER/USPTO databases. The resulting unique and proprietary dataset consists of 1504 U.S. VC-backed exits across 7 technology sectors in the 20 years from 1980-2000, 961 IPOs and 543 M&As. The influence of technological innovation on the exit performance of VC-backed technology firms is examined. As predicted by RBV theory, technology firms engaged in patenting activity were found more likely to be associated with the more profitable IPO exit route, higher VC investment and exit value.

Item Type: Article
Additional Information: Full-text Open Access not permissable on Institutional Repository JEL classification codes: G24, G32, M13, O31, O32.
Keyword(s) / Subject(s): Venture capital investment performance, technological innovation, resource-based view, competitive strategy, agency and signalling theory, clustering, patents, exit, IPO and M&A, record linkage, multilevel analysis
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Management
Depositing User: Dr Pierre Nadeau
Date Deposited: 06 Feb 2012 09:24
Last Modified: 17 Apr 2013 12:33
URI: http://eprints.bbk.ac.uk/id/eprint/4587

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